Trader Joe's is a privately owned grocery store that sells a variety of natural and healthy

food and beverage options. Their headquarters is located in Monrovia, California and they have
about 350 stores in roughly 25 states. It was started by Joe Coulombe as a Los Angeles
convenience store chain in 1958, and then the company was bought in 1979 by German
billionaires Karl and Theo Albrecht, who founded the ALDI food chain. Trader Joe’s competes
within their niche market of organic and health food grocery stores with stores like Wild Oats
and Whole Foods, as well as big grocery stores such as Hannaford, Roche Bros, and Market
Basket. To keep costs down, its stores have no service departments and average about 10,000-
15,000 sq. ft. The company's specialty is its line of more than 2,000 private-label products (70%
of sales), including beverages, soup, snacks, and frozen items. Some observers think that sales
per square foot at Trader Joe's are hovering at about $1,000 -- twice the level of typical
supermarkets. Sales last year were roughly $8 billion, the same size as Whole Foods and bigger
than those of Bed Bath and Beyond.1

Their goal is to offer value and a dedication to quality service through warm, friendly, committed
employees along with a pledge to offer quality products. Their mission is to “bring customers the
best food and beverage values and the information to make informed buying decisions. There are
more than 2,000 unique grocery items in our label, all at honest everyday low prices. We work
hard at buying things right: Our buyers travel the world searching for new items and we work
with a variety of suppliers who make interesting products for us, many of them exclusive to
Trader Joe’s. All our private label products have their own "angle," i.e., vegetarian, Kosher,
organic or just plain decadent, and all have minimally processed ingredients.”2 This mission
requires a culture that supports loyalty and customer service through personal contact with the
consumer. The commitment to the customer is captured on the Trader Joe’s website, “Our
Product Guarantee: We tried it! We liked it! If you don’t, bring it back for a full refund, no
questions asked.” The underlying message is that Trader Joe’s desires to establish a personal
relationship with the customer.

Q1. Using Porter’s Competitive Forces model, discuss Trader Joe’s industry competitive
environment.

A1. Despite their unique strategy, Trader Joe’s must still compete for customers with both large
grocery stores and other ‘specialty food stores,’ such as Wild Oats and Whole Foods markets.
To analyze the intensity of competition for Trader Joe’s we can use Porter’s Five Forces model.
These forces include the threat of new entrants, the bargaining power of buyers, the bargaining
power of suppliers, the threat of substitute products and services, and the intensity of rivalry
among competitors in an industry.

The threat of new entrants is medium for Trader Joe’s. There exists the possibility that
competition in the form of a grocery store such as Whole Foods or Market Basket, a small
specialty store, or a Wal-Mart or Target super store could open in the area at any time. In 2008,
there were approximately 85,200 grocery stores, of which approximately 25,900 were
1
Kowitt, Beth. Inside the secret world of Trader Joe’s: http://money.cnn.com
2
Trader Joes homepage - www.TraderJoes.com
convenience stores.3 The reason I would deem it medium and not high is because Trader Joe’s
offers unique products that other stores do not which is one of their advantages. It also appears
that they have very loyal customers who would not be swayed by the lure of lower prices offered
by another store.

The power of the buyer is also medium due to the variety of goods and services provided by its
competitors within the industry such as Whole Foods and other grocery stores. There are
typically more than one food store located in an area and this allows customers to have their
choice of where they prefer to shop. However, these stores serve so many individual consumers
that individual buyer power is pretty much non-existent. In order to retain customers Trader
Joe’s offers a very high level of customer service which is exhibited by employees bringing
shoppers baskets if their hands are full and by walking customers to items instead of just giving
directions.4

The power of suppliers is low due to the fact that Trader Joe’s deals with a multitude of suppliers
worldwide, thereby decreasing the leverage of an individual supplier. Also, Trader Joe’s has
much more control over their suppliers due to the smaller size of their stores and the number of
SKUs that they stock. Most of the products sold at their store also carry their own brand name,
which means that they could switch suppliers and the customer would never know the difference.
Also, Trader Joe’s has all of their suppliers sign secrecy forms so neither shopper nor
competitors know who is making their products.

The threat of substitutes is medium. Grocery stores are found in nearly every city in the United
States. However, in addition to some staple foods, Trader Joe’s carries extensive specialty items
that are imported from all over the world. Many competitors have jumped on board with the
trend of offering organic foods, however the selection still does not measure up to Trader Joe’s.
Restaurants do not really pose a threat either as there are not too many organic, specialty
restaurants. Also, there is no other grocery or specialty store that offers the same shopping
experience as Trader Joe’s does, such as: employees wearing hawaiin shirts, handing stickers
out to kids, and refunds with no questions asked.

Lastly, the rivalry among competitors is high. As stated earlier, many big chain grocery stores
have been offering more organic, specialty foods as public awareness to proper diets continues to
increase. Trader Joe’s is also facing stiffer competition from Whole Foods and Wild Oats
Markets. However, these stores are actually focused on organic foods and environmentally
friendly products, and charge a higher price for this differentiation. For now, Trader Joe’s is able
to stay ahead of these stores due to their low prices.

Q2) List Trader Joe’s SWOT factors

Trader Joe’s strengths include a selection of healthy and unique foods that are difficult to find in
other local stores. They send their employees all over the world to find the best quality foods
that cannot be found in most other stores. They are famous for their everyday low prices and
their dedication to customer service. There are many stories of employees going out of their way
to assist customers and they also have a no questions asked refund policy. They are known for
3
Bureau of Labor Statistics - http://www.bls.gov/oco/cg/cgs024.htm
4
Kowitt, Beth. Inside the secret world of Trader Joe’s: http://money.cnn.com
their employees’ goofy attire, their great service, and their great selection of exotic and healthy
foods. They have been in the business since the late 50’s and have consistently been market
leaders. They have a great brand reputation and they have extremely loyal customers.

Their weaknesses include: a limited inventory selection, a lack of storage space at the stores, and
the shroud of secrecy that hangs over the store’s operations. A typical family cannot do all of its
shopping at Trader Joe’s. The store does not stock staple items such as baby food, toilet paper,
and other necessity items. Also, the lack of storage space in the stores means ordering and
distribution must be precise.

One of the opportunities that I can see for Trader Joe’s is continuing to capitalize on the growing
trend of healthy eating. Despite our country's battle with obesity, Americans continue to show
that they're concerned with health and physical appearance. Trendy diets become all the rage,
new products with health claims fly off the shelf and health and wellness campaigns capture a lot
of mainstream media. In the retail industry it has become clear that baby boomers, in particular,
have shown an intense focus on health and wellness. For retailers to focus on healthy lifestyle
choices is a strategic and savvy move as there are dollars to earn and consumers to capture. Also,
I think that Trader Joe’s could only stand to benefit from an increase in advertising.

The threats facing Trader Joe’s would be the poor economy, the growing trend of conventional
supermarkets expanding their organic food offerings, and government regulations on organic
food. The Food Marketing Institute reports that 57 percent of supermarkets are now offering a
separate natural and organic food aisle or section, with Whole Foods Market and Wild Oats
Markets leading the way. Also, I see a potential problem arising from their refusal to provide
information on where its products come from and how they’re made. In an era of increasing
scrutiny on local sourcing and having products be truly organic, Trader Joe’s has kept many of
its products’ origins, particularly its own house brands, covered in mystery. As a result, the once
all-fun brand has increasingly drawn the ire of environmental groups. Greenpeace recently
created a “Traitor Joe’s” campaign to pressure the company into stocking only sustainably
harvested seafood. The chain caved, saying it will go sustainable, only by 2012.5 Some of its so-
called “homegrown” products have surprisingly big-corporate roots, as with the chain’s pita
chips, which are really made by a company in the portfolio of PepsiCo. Awareness and concern
about what’s in our food and where ingredients originate is only growing. This is an issue that
won’t be going away, and Trader Joe’s management would be smart to get on the right side of it
as soon as possible. If Trader Joe’s wants to keep its credibility in the health-food niche, it will
have to meet the standards of rival Whole Foods, which offers consistent country-of-origin
labeling and submits to independent, certified-organic monitoring checks.6

5
The Greenpeace vs Trader Joes Sustainable Seafood War - http://www.huffingtonpost.com/2009/07/13/the-
greenpeace-vs-trader_n_230891.html
6
Whole Foods website – http://www.wholefoodsmarket.com/values/organic.php
Q3) Discuss Trader Joe’s strategies in terms of Corporate strategies, Business strategies and a
few functional strategies.

A3) Trader Joe’s uses various methods in order to provide their products at a low cost. Their
main strategy is to buy products directly from suppliers in large volumes. This allows the
company to act as its own distributor which decreases transaction costs. Even though the store
does not sell in large volumes like other major grocers such as Market Basket and Shaw’s, they
are able to purchase large volumes due to the limited assortment of available products. What this
means is that that there is often only one package size offered and only one brand available
(typically the Trader Joe’s private label). This strategy cuts down on costs to suppliers and the
savings are then passed on to the customer.

The relationship and interactions with suppliers is also an important component of the corporate
strategy. Calling themselves the “traders on the culinary seas,” this corporation sends their
buying staff all over the world to negotiate prices on high quality foods. 7 They taste more than
8000 samples per year, and buy from many different suppliers, thus lowering the relative
bargaining power of any individual supplier. They pay the suppliers with cash, on time, and thus
build strong relationships and a good reputation. Also, unlike most grocery stores, they do not
require suppliers to pay a “slotting allowance”, which is money to put suppliers’ product on the
shelf, or promotional fees. This reduction in cost to the supplier comes from using Trader Joe’s
private label on the goods.

In order to sell the same products as other grocers at a lower price, Trader Joe’s buys direct from
the manufacturers and puts the product in Trader Joe’s private label. The other grocers must
charge a higher premium for the product with a brand name. The cost associated with the brand
name comes from the high price of national marketing, selling, couponing and advertising. This
strategy was used by Aldi foods, and then passed along to Trader Joe’s in 1979. Since it is
important that consumers will only become repeat buyers if the quality of the food is high,
Trader Joe’s sets high quality standards on all of its private label foods.8
The growth of the organization has been achieved without debt. Their expansion is fully self-
financed. The operation remains free of union involvement—salaries and benefits are sufficient
to ward off labor unrest. Expansion is carefully and cautiously executed because the challenge
associated with expanding its unique culture requires a very detailed selection and training
process. Store location is determined by three key factors: density of population, educational
level of the consumer, and distribution efficiencies. Market research has revealed a relationship
between education and consumer choices: The more highly educated tend to travel more and,
hence, are more inclined to be attracted to the unique product lines offered by Trader Joe’s.9

The last major strategy to reduce costs, and thus price to consumers, is the method of advertising.
While most grocery stores spend a significant portion of their budget on television commercials,
newspaper advertisements, coupons, and club cards, Trader Joe’s has very limited advertising.
7
Trader Joe’s – www.traderjoes.com
8
Trader Joe’s is not your average Joe - http://www.allbusiness.com/marketing-advertising/channel-
marketing/219840-1.html
9
“Trader Joe’s Experience - The Impact of Corporate Culture on Business Strategy”
-http://www.themanager.org/Strategy/Trader_Joe_Corporate_Culture_Strategy.htm
Trader Joe’s uses weekly circular highlighting key items for sale for the week. They also have
in-store promotions where customers can sample highlighted products in order to influence them
to buy them. Trader Joe’s does not have sales or club cards because they offer the lowest price
every day. Fearless Flyer is another marketing strategy Trader Joe's employs. Fearless Flyer, is
distributed to the public and arouses environmental awareness among consumers. It is one of
their most successful marketing strategies.

Q4) Can Trader Joe’s sustain its competitive position?

A4) I believe that Trader Joe’s can sustain their competitive position. Trader Joe’s holds a
competitive advantage due to its strategy to differentiate itself from any other grocery store
chain. The strategy includes carrying highly selective products, offering private-label products,
offering small, neighborhood stores that offer comfort, providing attentive employees and
offering extraordinary value. They seem to be committed to providing selective products that
cannot be found in grocery stores. It does not carry commodities such as soft drinks and other
staple items typically found in your local grocery store. The company prides itself on the quality
of its private label products, which account for 70 percent of the product offerings. Personnel at
Trader Joe’s scour the world for products free of preservatives, artificial colors or flavors or
genetically altered ingredients. They taste-test all foods considered for private labeling. If the
taste testers are unanimous in their high recommendation of the product, Trader Joe’s buys it and
re-labels it. The result is an assurance of quality that other grocery stores cannot provide. The
value that Trader Joe’s offers to customers includes “taste, quality, private labeling and price”
according to the CEO Don Bane, and the strategy is successful.10

Conclusion

Trader Joe’s has successfully created a nice little niche for itself in a highly saturated market and
has been able to create what appears to be a sustainable competitive advantage by offering high
quality products at low prices. It is clear that the unique branding strategy of Trader Joe’s
differentiates itself from all other grocery store chains and that differentiation as a corporate
strategy can produce incredible results. How they accomplish this is also very different from
their most obvious competitors such as Whole Foods. For their customers Trader Joe’s provides
value not primarily through the quality of its products, as does Whole Foods, but rather through
their distinct shopping experience. Shopping becomes an adventure that takes them into a store
whose characteristics are often in opposition to those of traditional markets: casual, low price,
high service with a constantly changing and somewhat unpredictable product mix. Their culture
is both unique and difficult to copy because it involves the customers in an ongoing sense of
discovery and adventure. And because it is aligned to their specific target market rather than
broad differentiation built around quality and service, it is more difficult to copy by those
companies that are serving a bigger competitive space. Finally, at least at this time, there are no
substitutes for the combination of attributes provided by their culture and customer experience,
because at Trader Joe’s, customers become part of the culture rather than merely experiencing it.
10
www.traderjoes.com
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July 13, 2009 <http://www.huffingtonpost.com/2009/07/13/the-greenpeace-vs-
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company>

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